2018 (4) TMI 40

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....ary, unwarranted, unjustified and bad in law. 3. In this case notice was issued u/s. 263 of the Income Tax Act as under: "During the year under consideration, it is found that you had claimed finance cost of Rs. 8.52 crores in P & L Account whereas entire fund borrowed is used in project work in progress of Rs. 129.06 crores. Last year, you have included interest claimed of Rs. 8.81 crores in project work in progress. Therefore, it is clear that you should have included the finance cost of Rs. 8.52 crores on work in progress. By not including, this income is under assessed." 4. The assessee in this regard responded as under: "1. That the assessee company claimed finance cost of Rs. 8.52 crore sin profit and loss account as against in the earlier year Rs. 8.81 crores included in inventory work in progress. The assessee company followed the percentage completion method of accounting and in the earlier the payment of interest included in work in progress as per accounting standard/guideline issued by the institute of Chartered Accountant of India. During the year under consideration, assessee company has paid interest on loan taken for its real estate ....

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....e Assessing Officer resulting in drawing incorrect assumption of facts, makes the orders erroneous and prejudicial to the interest of the revenue. 4.1.5 Thus, the instant case is a glaring example of not making relevant enquiry, which amounts to 'no enquiry' and hence it becomes a case of non application of mind by the Assessing Officer and hence the proceedings u/s. 263 are valid in law. 4.2.3 The assessee in its submission vide letter dated 27.09.2016 has tried to rely on Accounting Standard 16. The contention of the assessee is not acceptable in view of the fact that the borrowed capital had actually been deployed in the preceding years toward development of its project. Hence, all the expenses relating to project have to be capitalized. 4.2.5 It is observed that in the preceding year the assessee capitalized expenses pertaining to its project which interalia includes interest to work in progress. However, for the year under consideration, the assessee has taken a totally different stand in respect of interest expenses pertaining to its project without any change in situation or facts. From the statement of project work in progress can be seen that eve....

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..... 8. Per contra, the ld. Departmental Representative relied upon the orders of the ld. Commissioner of Income Tax (Appeals). He submitted that the assessee has changed the method of accounting without any disclosure. Hence, he submitted that the ld. Commissioner of Income Tax (Appeals) has rightly assumed jurisdiction u/s. 263 of the I. T. Act. 9. We have carefully considered the submissions and perused the records. We find that section 263 of the I. T. Act reads as under: Revision of orders prejudicial to revenue. 263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 10. The Hon'ble Apex Court in the case of CIT vs. Ma....

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..... 20. An asset is normally ready for its intended use or sale when its physical construction or production is complete even though routine administrative work might still continue. If minor modifications, such as the decoration of a property to the user's specification, are all that are outstanding, this indicates that substantially all the activities are complete. 21. When the construction of a qualifying asset is completed in parts and a completed part is capable of being used while construction continues for the other parts, capitalization of borrowing costs in relation to a part should cease when substantially all the activities necessary to prepare that part for its intended use or sale are complete. 13. From the above, it is evident that the issue was duly enquired by the Assessing Officer. The assessee has responded by submitting that it has followed Accounting Standard 16 issued by Institute of Chartered Accountant of India which has mandated that capitalization of borrowed cost should seize when all the activities necessary to prepare the qualifying asset for its intent to use or sale are complete. It was the assessee's case that the assessee's project....